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Enforcement

What you need to know

The National Enforcement Unit (NEU) investigates and, where appropriate, prosecutes offences under various legislation on behalf of the Registrar of Companies, Official Assignee, and Registrar of Motor Vehicle Traders.

The NEU also prepares banned director reports on behalf of the Registrar of Companies.

Legislation enforced
Referral of cases and complaints
Selection of cases
Banned directors and managers
Postal address

Legislation enforced

The NEU investigates offences under the following legislation:

Insolvency Act 1967
Companies Act 1993
Financial Reporting Act 1993
Securities Act 1978
Securities Act (Contributory Mortgage) Regulations 1988
Electricity Act 1992
Radiocommunications Act 1989
Superannuation Schemes Act 1989
Motor Vehicle Sales Act 2003
Some offences under the Crimes Act 1961

Referral of cases and complaints

Any member of the public can refer a complaint to the NEU regarding breaches of any legislation it administers and enforces.

The nature of the complaints ranges widely. For example, they can relate to a director allegedly managing a company while being prohibited, to the actual conduct of a company director. There is also an obligation placed on a liquidator or receiver to report alleged breaches of relevant legislation, or concerns the liquidator or receiver may have over the conduct of directors in relation to the management of the affairs of the company. These concerns generally relate to issues
such as reckless trading, lack of books and records and undercapitalisation that could form the basis for the consideration of banning directors.

Complaints are generally received from members of the public, however the majority of referrals received are from the Official Assignee and Registrar of Companies. Referrals are also received from other government departments, such as the New Zealand Police, Commerce Commission, and Securities Commission, among others. Complaints are also received from liquidators, receivers, statutory managers, the New Zealand Credit and Finance Institute, and other professional associations.

Selection of cases

Although the Solicitor General’s guidelines are used when evaluating new complaints, the NEU also considers the following:

public interest
the extent of the offending
the seriousness of the offending
the statute of limitations
whether other remedies are available.

A high standard of proof is required before any case can proceed toward prosecution. The NEU Manager has full discretion in the selection of cases.

Banned directors and managers

Link to Banned Director and Manager Search

The prohibition power is designed to protect the public from directors or managers who have a track record of commercial failure. It affirms the accountability of directors and managers to creditors and shareholders as demanded by the Companies Act 1993.

Section 385 of the Companies Act 1993 gives the Registrar of Companies the power to prohibit a person from being a director or promoter of a company, or being concerned in, or taking part, whether directly or indirectly, in the management of a company for a period not exceeding five years.

If a person is convicted of breaching the prohibition order, they are liable to imprisonment for a term not exceeding five years or to a fine not exceeding $NZ200,000.

This website holds a database of prohibited persons including those prohibited under section 385.

Section 385 of the Companies Act 1993 sets out the framework for the prohibition process:

The person must have been a director of, or concerned in, or a person who took part in, the management of one or more companies.
One or more of these companies must have “failed” within the previous five years. “Failed” companies include those which have been liquidated, placed into receivership or have ceased trading because they were unable to pay their debts as and when they fell due.
If the person has been a director or manager of two or more failed companies, that person must satisfy the Registrar that either mismanagement was not even a partial cause of the failures; or that it would not be “just or equitable” to exercise the power.
If there has been only one failure, the onus of proving mismanagement rests with the Registrar.
The Registrar must then notify the person of his intention to consider exercising the power, and consider any submissions that person wishes to make to the Registrar.
If prohibition is warranted, a prohibition period is then set, and the person is formally notified of this fact.

The criteria, relevant to taking prohibition action includes:

the number of failed companies
the degree and incidences of mismanagement
the existence or absence of any external factors
the degree of managerial control exercised by the person concerned
the amount of the deficiency to creditors
the number of creditors and
the strength of evidence for prohibition.

There is an avenue for lodging complaints about corporate delinquency.

The disqualification process is complaint driven, although reports in the public domain may also give rise to an investigation.

Prohibition action usually stems from information supplied by the liquidator of a company. Referrals may, however, be forwarded to the Registrar from any source. Documents relating to the company in question or formal reports on the role played by persons in the management of such companies may also be submitted.

Action by the Registrar under section 385 is discretionary, and the Registrar will consider whether there is a possible risk to the public in allowing the person to act as a director, manager or promoter of a company. Before any action is taken, a referral must be accompanied by some evidence which:

identifies that the person was involved as a director of or manager of one or more companies that have failed within the last five years and
establishes some grounds for the belief that mismanagement was at least partly responsible for the failure of one or more of those companies.

Use the Complaint Referral Form [73kB PDF] to make a complaint under the following legislation: